A Put on the US Government: Standing at the Cliff's Edge

By: J.D. Rosendahl | Thu, Mar 25, 2010
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Here we are again, with the 30 year US Treasury market testing support zones, and standing at the cliff's edge. The long bond has rolled over sharply in the past few days and dropped right into support on the weekly and monthly charts. Let's start with the daily chart below reflecting a price reversal from a consolidation pattern.

30-Year US Treasury Bond price with Elliott Wave labelling

In the above chart, I've added in my own Elliott Wave count the way it looks to my eyes. It's a bearish view of the bond market, and from the bottom of A or 1 the bond market has gone dead sideways so far in a consolidation structure. That's a classic continuation type pattern you see in waves 2, 4, or B. So the price form is hinting at lower prices so far.

The weekly chart below reflects a potential head and shoulder's top pattern, and waiting for a price break down for confirmation. The RSI and MACD are trying to roll over, which one should expect to confirm a break down from the current pattern.

30-Year US Treasury Bond price showing possible Head and Shoulders pattern

Below is the monthly chart of the long bond. It's been in an upward channel for 3 decades and standing at the cliff's edge. Actually, it's at one of the two support channel lines. The monthly MACD is still heading lower and hasn't crossed the zero line, so there's plenty of room for the MACD to move lower confirming a price break down from these levels.

30-Year US Treasury Bond price since 1980 showing a trading channel

What's really interesting is the neckline of the head and shoulder's pattern on the weekly chart is about the same price as the support channel line on the monthly chart. So, a price break down could easily confirm the head and shoulder's pattern and the channel is finished, which should usher in a more significant correction in long bond prices over time.

All that's missing is the confirmation move down. The world is not ready for this correction or its implication, which I believe will be wide spread and diverse. This and this alone is the most important chart in my mind to follow and something worth keeping an eye on these days as prices are very close to a significant technical signal.

Hope all is well.



Author: J.D. Rosendahl

J.D. Rosendahl

J.D. Rosendahl is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, we recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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